AS 15 Employee Benefits Summary Notes PDF. In the previous article, we have given AS 25 Interim Financial Reporting and AS 27 Financial Reporting of Interests in Joint ventures. Today we are providing the complete details of accounting standard 15 employee benefits I:e objective, applicability, definitions, short-term employee benefits, recognition and measurement, post-employment benefits scheme, multi-employer plans and accounting treatments. You can also download AS 15 note by ICAI at the end of this article. This summary revised notes is also useful for CA Final students.
AS 15 Employee Benefits
The objective of this Standard is to prescribe the accounting and disclosure for employee benefits. The Standard requires an enterprise to recognize:
(a) a liability when an employee has provided service in exchange for employee benefits to be paid in the future; and
(b) an expense when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits.
Accounting Standard -15 Employee Benefits – Effective from accounting period commencing on or after 1st April 2006.
Applicable to Level II & III enterprises subject to certain relaxation provided, if number of persons employed is 50 or more.For Enterprises employing less than 50 persons, any method of accrual for accounting long-term employee benefits liability is allowed.
The following terms are used in this Standard with the meanings specified:
1) Employee benefits are all forms of consideration given by an enterprise in exchange for service rendered by employees.
2) Short-term employee benefits are employee benefits (other than termination benefits) which fall due wholly within twelve months after the end of the period in which the employees render the related service.
3) Post-employment benefits are employee benefits (other than termination benefits) which are payable after the completion of employment.
4) Multi-employer plans are defined contribution plans (other than state plans) or defined benefit plans (other than state plans) that: (a) pool the assets contributed by various enterprises that are not under common control; and (b) use those assets to provide benefits to employees of more than one enterprise, on the basis that contribution and benefit levels are determined without regard to the identity of the enterprise that employs the employees concerned.
5) Termination benefits are employee benefits payable as a result of either:
(a) an enterprise’s decision to terminate an employee’s employment before the normal retirement date;
(b) an employee’s decision to accept voluntary redundancy in exchange for those benefits (voluntary retirement).
Short-term Employee Benefits :
Short-term employee benefits include items such as:
- wages, salaries and social security contributions;
- short-term compensated absences (such as paid annual leave) where the absences are expected to occur within twelve months after the end of the period in which the employees render the related employee service;
- profit-sharing and bonuses payable within twelve months after the end of the period in which the employees render the related service; and
- non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees.
Recognition and Measurement
When an employee has rendered service to an enterprise during an accounting period, the enterprise should recognize the un-discounted amount of short-term employee benefits expected to be paid in exchange for that service:
- as a liability (accrued expense), after deducting any amount already paid. If the amount already paid exceeds the undiscounted amount of the benefits, an enterprise should recognise that excess as an asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or a cash refund; and
- as an expense, unless another Accounting Standard requires or permits the inclusion of the benefits in the cost of an asset (see, for example, AS 10 Accounting for Fixed Assets).
Post employment benefits scheme :
Post employment benefits can either be defined contribution plans, under which enterprise’s obligation is limited to contribution agreed to be made and investment returns arising from such contribution, or defined benefit plans under which the enterprise’s obligation is to provide the agreed benefits. Under the later plans if actuarial or investment experience are worse then expected, obligation of the enterprise may get increased at subsequent dates.
Post-employment benefits include:
- retirement benefits, e.g., gratuity and pension; and
- other benefits, e.g., post-employment life insurance and post employment medical care.
An enterprise should classify a multi-employer plan as a defined contribution plan or a defined benefit plan under the terms of the plan (including any obligation that goes beyond the formal terms). Where a multi-employer plan is a defined benefit plan, an enterprise should:
(a) account for its proportionate share of the defined benefit obligation, plan assets and cost associated with the plan in the same way as for any other defined benefit plan; and
(b) disclose the information
Defined contribution plan:
For example State Plans and Insured Benefits are covered under this category. cost of Defined contribution plan should be accounted as an expense on accrual basis. In case contribution does not fall due within 12 months from the balance sheet date, expense should be recognised for discounted liabilities.
For balance sheet purpose, the amount to be recognised as a defined benefit liability is the present value of the defined benefit obligation reduced by
(a) past service cost not recognised and
(b) the fair value of the plan asset. An enterprise should determine the present value of defined benefit obligations (through actuarial valuation at intervals not exceeding three years) and the fair value of plan assets (on each balance sheet date) so that amount recognised in the financial statements do not differ materially from the liability required. In case of fair value of plan asset is higher than liability required, the present value of excess should be treated as an asset.
1) retirement benefits of provident fund and other defined contribution schemes, contribution payable by employer and any shortfall on collection from employees if any for a year be charged to Profit & Loss A/c. Excess payment be considered as pre-payment.
For gratuity and other defined benefit schemes, accounting treatment will depend on the type of arrangements, which the employer has entered into…
2) If payment for retirement benefits out of employers funds, appropriate charge to P& L to be made through a provision for accruing liability, calculated as per actuarial valuation.
3) If liability for retirement benefit funded through creation of trust, cost incurred be determined actuarially. Excess/ shortfall of contribution paid against amount required to meet accrued liability as certified by actuary be treated as pre-payment or charged to P & L account.
4) If liability for retirement benefit is funded through a scheme administered by an insurer, an actuarial certificate or confirmation from insurer to be obtained. The excess or shortfall of the contribution paid against the amount required to meet accrued liability as certified by actuary or confirmed by insurer should be treated as pre-payment or charged to Profit & Loss account.
5) Any alteration in the retirement benefit cost should be charged or credited to P & L A/c and change in actuarial method should be disclosed as per AS 5.
Click Here to download AS 15 notes by ICAI.
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